I'm an expert in business growth and overcoming organizational obstacles to success and a public speaker at conferences and management meetings on how to grow your organization. I'm a workshop leader for companies wanting to find their next growth engine, an author of "Create Marketplace Disruption: How to Stay Ahead of the Competition" (Financial Times Press), a contributing editor for "International Journal of Innovation Science" and a leadership columnist for CIOMagazine and ComputerWorld. I am a former head of business development for Pepsico and Dupont, consultant with The Boston Consulting Group and am currently Managing Partner for Spark Partners. Harvard MBA. Hail from Chicago.

Microsoft Still Can't Find Its Future. Is It Too Late for the Company?

Microsoft needed a great Christmas season. After years of product stagnation, and a big market shift toward mobile devices from PCs, Microsoft’s future relied on the company seeing customers demonstrate they were ready to jump in heavily for Windows8 products – including the new Surface tablet.

Looking deeper, for the 4th quarter PC sales declined by almost 5% according to Gartner research, and by almost 6.5% according to IDC. Both groups no longer expect a rebound in PC shipments, as they believe homes will no longer have more than 1 PC due to mobile device penetration, a market where Surface and Win8 phones have failed to make a significant impact or move beyond a tiny market share. Users increasingly see the complexity of shifting to Win8 as not worth the effort; and if a switch is to be made, consumer and businesses now favor iOS and Android.

Microsoft makes more than 75% of its profits from Windows and Office. Less than 25% comes from its vaunted servers and tools. And Microsoft makes nothing from its xBox/Kinect entertainment division, while losing vast sums in its on-line division (negative $350M-$750M/quarter). No matter how much anyone likes the non-Windows Microsoft products, without the historical Windows/Office sales and profits, it’s hard to see how long Microsoft can remain sustainable.

What can we expect next at Microsoft?

Ballmer appears to have committed to fight to the death in his effort to defend & extend Windows. So expect death as resources are poured into the unwinnable battle to convert users from iOS and Android.

As resources are poured out of the company in the Quixotic effort to prolong Windows/Office, dividends should steadily diminish.

Expect substantial layoffs over the next 3 years. They could even reach 50-60%, or more, of employees.

Expect closure of the long-suffering on-line division in order to conserve resources.

The entertainment division could be spun off, sold to someone like Sony or possibly Barnes & Noble, or dramatically reduced in size. Unable to make a profit it will increasingly be seen as a distraction to the battle for saving Windows, and Microsoft leadership has long shown it doesn’t know how to profitably grow this business unit.

As more and more of the market shifts to competitive cloud infrastructure Apple, Amazon, Samsung and others will grow significantly. Microsoft, losing its user base, will demonstrate its inability to build a new business in the cloud, mimicking its historical failures with Zune (mobile music) and Microsoft mobile phones. Microsoft server and tool sales will suffer, creating a much more difficult profit environment for the sole remaining profitable division.

Missing the market shift to mobile has already forever tarnished the Microsoft brand.

No longer is Microsoft seen as a leader. Instead it is rapidly losing market relevancy as people look to Apple, Google, Amazon, Samsung, Facebook and others for leadership. The declining sales and lack of customer interest could lead to a tailspin at Microsoft not unlike what happened to RIM. Cash will be burned in the struggle to save what Microsoft sees as the core of the company.

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The situation is easy to explain: Microsoft was NEVER good. Only the competion was weak and made many mistakes. Times have changed. The Microsoft competitor of today are smart and deliver good products. That makes Microsoft with its in the best case mediocre product quality looking quiet lame. And the real competition even hasn’t arrived yet. In 2014 Linux will blow to attack the desktop and Microsoft has nothing to prevent on the desktop the same success Linux has already in the cloud, on servers, in supercomputing and in the mobile world.

Thanks for commenting Harald Engels. Completely concur that competition has changed dramatically for Microsoft. Especially alternative platforms which reduces the focus on desktops and laptops, making it much harder for Microsoft to maintain dominance – which it now clearly has lost.

Out of the 7000 or targeted customers we work with MS (very rough guess) is that 95%+ utilize MS software, either on the front end or the back end. I don’t know how that translates into MS having lost its dominence. Maybe at home and at play they aren’t the big player they once were (X-Box is still pretty popular) however for “work”, ie getting things done they still seem pretty strong.

Anytime a new solution comes along in the early days we don’t take it seriously Andrew Lorenz. You originally thought of a mobile phone as a toy used for emergencies or special occasions. But today you use your mobile phone every day, and rarely use a land line. What at first seems like an impossible shift can often happen very, very fast.

I have to disagree with both of you and agree with Andrew on this one….

As someone who actually works out in the field with real businesses, both small and medium size, microsoft still has it’s dominance by far. There is no indication that anyone is willing to switch anytime soon. Most real world business applications are developed on and for windows, both on the server and client side. There is still a great deal of businesses that are refusing to move their entire company’s infrastructure to “the cloud” (aka off-site servers owned and hosted by someone else) as well.

The statement you make about it’s “vaunted servers and tools” also feels somewhat misleading. Microsoft does speak highly of it’s server systems, but they bost even more about windows server, especially 2012. If you’re classifying Windows Server under their “servers and tools” category, that is incorrect. Windows Server 2008/R2/2012 are all considered versions of Windows. Their “servers and tools” would be their lineup of office 365 self-hostable apps such as Lync, Exchange, and Sharepoint. Now days though, because of the complicated measures that need to be taken to get these systems setup, Microsoft is pushing for everyone to move to the “cloud” where they have these servers already running for you and you are free to use them and manage them remotely without the need or worry of setting them up.

Most organizations with a proper network setup in place still run Windows server, weather it be small business or standard, and are not looking to switch anytime soon. This is mostly thanks to Microsoft’s Active Directory and easy management of network shares and permissions that almost all companies with a proper network actually use. Not to mention the ease of sharing printers and faxes with Windows Server compared to linux servers (some will say it’s easy, but trust me when I say that 90% of IT consulting companies out there don’t have the knowledge to setup, maintain, and manage any type of linux-only system, making costs to bring someone in who knows what theyre doing in that field higher than just going with windows). Even though they’re not using any of their servers or tools, they still use their flagship server product. I don’t see this disappearing or going anywhere anytime soon, even with the shift to the cloud. Especially as microsoft continues to offer cloud services that can integrate with your local servers to create a hybrid deployment for those who still don’t want some third party controlling all of their company data.

I didn’t actually finish reading this article, and I don’t really plan on it either, as it was today’s highlight of inaccurate writing on a different news website while most of the world relaxes today to celebrate MLK day. Maybe you should dig a bit further into the technology a company like this actually puts out and how it is actually utilized in the real world, rather than assuming you know what you’re talking about based on some numbers and statistics that were fed to you. Just because you hear buzz words passed around these days like “cloud” and it seems to be making headway in the consumer market doesn’t mean there’s suddenly going to be a huge shift in how the world uses their technology all of the sudden as there was with mobile phones. Especially with the costs associated with restructuring an entire business infrastructure when switching from one company to another. Apple also still doesn’t have any sort of enterprise solution whatsoever, especially when it comes to the cloud, so they’re not getting into that market anytime soon. In fact, most IT managers will do nothing but complain about how apple products just don’t fit well into their organization. The college IT department I worked for recently got so fed up with apple and their BS that they refuse to let any of their products other than the iPad/iPhone make it’s way into a faculty’s office.

Realistically Enron should be credited with the concept of the “cloud” and was doing things like this back in 1999. Back then no one really gave a shit nor did they understand the technology, so it was shut down before it even got off the ground. Although they were doing illegal things, they were also doing many brilliant things as well. It took many years before anyone realized the importance of broadband and the speeds of high bandwidth. Here we are today though, and the term “cloud” and it’s concept is just making it’s way to mainstream. It’s going to be along while before we make that shift and everyone just up and moves off of Microsoft products though, especially with our government and ISPs holding us back in terms of increasing bandwidth. Alot of non-technical saavy people who have more power than they deserve seem to think that bandwidth speeds upwards of gigabit are useless, even though realistically this is what we need to efficiently run cloud applications across the internet. By then Microsoft will have a plan in place to keep their customers on board, as they do with their current Hybrid deployment options available. I can’t tell you how many customers become angered over the fact that Office 365 exchange takes longer to sync than it does on-site after they make the switch.

I work at this level and those folk trust us to tell them what to take. We take that responsibility seriously as a duty to serve the customer’s interest and fulfill their trust. Over the last five years our org has gone from MS evangelism to agnostic, and the momentum is swinging to “no Microsoft.”

I don’t think you really understand what good code is nor do you understand how good the newer microsoft products really are…. Windows 8 is one of the best things they’ve come up with Code-wise and design-wise thus far. Not only is it much faster and more resposive, but it’s alot more stable and has a lot of nice new features that you actually need to sit down and experience before you can make any judgement. 95% of the people out there bashing it have only looked at for a few seconds and walked away saying it’s garbage, without really getting to know the OS. If you really want to make any judgement, you have to sit down with the OS for at minimum of a month, and even then you won’t see everything it has to offer. If you wanna go back to Win95, sure it sucked, but so did everything else back then when we knew almost nothing about computers.

You also claim you “work at this level” and tell your clients what to take. Well what exactly are you telling your clients to use? Because Microsoft’s systems are just that much better for any real business enviroment. A small pizza shop with 2 computers won’t care, but a large reality or law firm with over 50 users and computers is going to need something like Active Directory and access-controlled network shares. I know for sure I’d never put something like samba 4 in a serious production environment like that… Microsoft just has the stability down that much better and Apple does not offer any good enterprise solution for this at all, especially since their newer versions of their server are dumbed down pieces of shit. Not to mention that half the proprietary applications out there for businesses are written for windows, since mostly all of them use windows… And like I said, not everyone is jumping up to “the cloud”. I know for a fact two of the law firms I manage will never do this because they are afraid of their business data being handled by a third party and them either losing it or someone going through top secret court documents that should never be shared with anyone. The case of megaupload has left many skeptical of the integrity of the cloud. Granted Megaupload wasn’t the most legit file storage website, the fact that the US government can pretty much persuade any country to conduct a raid on a company or individual and basically confiscate and steal all of the data on their servers leaves everyone feeling like it may happen to them and their business data if they use some cloud provider. After what they did to megaupload, I can honestly understand why they are concerned too…. If they lost their data for even a few hours, they’re losing thousands of dollars, since half the lawyers at the firms we manage charge upwards of $500/hr.

I could get into it again, but I’m not going to waste my time writing a long article here in a pointless comments box on forbes.com… Believe what you want, but Microsoft isn’t going anywhere. Not anytime soon. People will keep attacking them for the rest of the time they’re around, because this world is filled with a negative nancy around every corner, just waiting for their next opportunity to complain about something stupid like this.

You keep missing the point Mike Claflin that the issue isn’t about how good Win8 is. Sales success is based on considerably more than a spec definition of a product – or a programmer’s assessment of code quality. If markets were determined by how “good” a product is Macs would never have been trumped by PCs 20 years ago. When a company creates a game changing trend, and then dominates that trend, it obsoletes historical products and draws an ecosystem of suppliers and customers around it that support the new solution. That was how Microsoft dominated the market for 20 years as it made minicomputers, mainframes, Unix workstations and Unix servers obsolete. But today the shift is to mobile devices, and Microsoft missed that. The outcome is going to be for Microsoft what it was for Sun Micro, Silicon Graphics, DEC…